Offshore Wealth, Onshore Distrust: Evidence from the Panama Papers Scandal

Does information revealing that political elites act against the public interest erode institutional trust and state legitimacy? We examine this question using the Panama Papers, a major disclosure of offshore financial activities involving political leaders and senior public officials worldwide. We construct an original country-level database measuring the timing and intensity of media coverage implicating domestic political figures and combine it with survey data from the Life in Transition Survey, the British Election Study, and Eurobarometer. Across countries, samples, and empirical strategies that identify distinct margins of the scandal, we find that the revelations increased the political salience of taxation and reduced trust in presidents, governments, and parliaments. The reputational consequences thus extended beyond the individuals directly implicated to the institutions through which political authority is exercised, consistent with an erosion of perceived state legitimacy. We also find that the disclosures strengthened support for democracy, suggesting that citizens valued the capacity of democratic institutions and investigative journalism to expose elite misconduct. Yet where domestic political involvement was especially salient, satisfaction with the functioning of democracy declined.